sundaram long term micro cap tax advantage …...sundaram long term micro cap tax advantage fund...
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Sundaram Long Term Micro Cap Tax Advantage Fund Series IV: Summary
• A 10 year close ended Equity Linked Savings Scheme with 3 year lock-in
• Investment eligible for benefit under Sec 80c of Income Tax Act
• Investor can redeem at the end of 3 year lock-in period
• Fund invests in equities of companies that can be termed as micro-caps
• Micro caps are defined as companies ranked 301 and over by market capitalisation on the NSE
• As of August 2016, micro caps were those with a market capitalization of Rs 4,821 crore and lower
• Scheme opened for subscription on 27/09/2016 and will close on 20/03/2017
• Benchmark - Nifty Small Cap 100
• Fund Manager - S Krishnakumar
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Multiple Benefits: Wealth Creation & Tax Saving
Fiscal Incentives Stock Market
Save Income Tax Wealth Creation
Rs. 1.5 lakh deduction under Section
80C of the Income Tax Act, 1961
Not just an investment option for tax savings but for
wealth creation on a long term basis
Being an ELSS fund, it is better placed to pick
stocks with a long term outlook.
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+ Sundaram AMC’s proven in-house research capabilities in the Mid, Small and Microcap categories
Microcap Tax
Advantage
Under Invested, Under Researched segment offering potential for significant returns
Reasonable valuations under assumption of
revival in economic growth and improvement in
earnings.
Further easing of monetary conditions to favorably
impact Economy esp. Small & Microcap companies
Close ended nature of ELSS
enables taking a long term view
Strong Research Team experienced
in identifying ‘tomorrow’s winners’
Buy-and-Hold approach to enable alpha generation
during periods of strong economic expansion.
Why Micro Caps
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Many Mega Caps have started as Micro Caps
India, being a land of
entrepreneurs, provides
opportunities for young
people to build on their dreams
Market opportunity is small in the
starting phase and hence not
meaningful for larger players
Companies go through a
significant evolution process
(regulatory and otherwise)
which requires entrepreneurs
to be nimble footed
Over time, businesses
move from unorganized
to organized segment
(e.g., retail, multiplexes, fashion)
As these new business are
established and scaled up
meaningfully, they:
• Witness large expansion in sales and profit
• Enter the radar of institutional owners and price discovery happens
• Become valuable acquisition targets
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Category Mar-04 Mar-07 Mar-10 Mar-13 Mar-16
Largecap 8,642 21,084 37,642 39,843 55,755
Midcap 1,377 4,266 8,963 9,032 13,261
Smallcap 1,297 5,103 9,648 9,989 15,999
Microcap 466 2,960 5,903 5,291 9,786
Total Mcap 11,782 33,414 62,157 64,155 94,801
Share of Microcaps (%) 4.0 8.9 9.5 8.2 10.3
Widening Choice: Cap-curve Based Trends across NSE & BSE
* Mcap in Rs. Bn
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Source: In-house Computation
Mid and Small caps have created significant value across market cycles: Tend to outperform in upcycles
Begin End %Returns Begin End %Returns Begin End %Returns
Apr-03 Jan-08 Jan-08 Oct-13 Oct-13 Aug-16
BSE Sensex 3,168 20,873 559 20,873 21,165 1 21,165 28,123 33
BSE Midcap Index 950 9,817 933 9,817 6,107 -38 6,107 12,968 112
BSE Small Cap Index 885 13,516 1,427 13,516 5,896 -56 5,896 12,404 110
Source: Bloomberg, Sundaram Asset Management
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0
200
400
600
800
1000
1200
1400
1600
1800
Ap
r/0
3
Feb
/04
De
c/0
4
Oct
/05
Au
g/0
6
Jun
/07
Ap
r/0
8
Feb
/09
De
c/0
9
Oct
/10
Au
g/1
1
Jun
/12
Ap
r/1
3
Feb
/14
De
c/1
4
Oct
/15
Au
g/1
6
Sensex Midcap Smallcap
Microcap Multi-Baggers across cycles
96
50 64
15
7
21
2
4
21
5
1
74
0
20
40
60
80
100
120
140
160
180
2013-2016 2008-2013 2003-2008
2x-5x 5x-7x 7x-10x >10x
Micro-caps have created significant value across market cycles
Opportunities to capture value is maximized during economic upturns - mix of large winners are noticeable as evidence of strength in economic expansion sets in
High potential for significant wealth creation as evidenced from the above
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Source: In-house Computation
Source: Bloomberg; Data as of September 12, 2016; Computation: In-house
Sectors Weights
Industrial Manufacturing 10.9
Consumer Goods 10.7
Construction 8.5
Financial Services 8.0
Automobile 6.2
Services 5.5
Healthcare Services 4.9
Textiles 4.6
IT 4.1
Metals 4.0
Chemicals 3.8
Energy 3.5
Media & Entertainment 3.4
Fertilisers & Pesticides 3.1
Cement 2.2
Telecom 1.0
Paper 0.6
Others 15.1
Share in NSE Market Cap (%) 11.1%
Micro Cap sector profile
Total Universe is 894 stocks
The total market cap of micro cap stocks is
Rs 12.2 lakh crore
Microcaps are 11.1% of the total Universe of
NSE stocks
They are diversified among sectors
Microcap Sector Profile displays Cyclical Bias
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BUSINESS
Positioning, Pricing power, Profitability, Growth, Brand strength, Capital intensity, Complexity of Business
MANAGEMENT
Past track record, management bandwidth, corporate governance
FINANCIALS
Capital Allocation, Leverage, Cash Flow generation, Return on capital
Approach to Stock Selection
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India: Macro momentum is strong
FY2014 FY2017E
GDP growth (%) 6.0% 7.8%
CPI Inflation (%) 10.0% 5.9%
CAD (% of GDP) 1.7% 1.3%
Fiscal Deficit (% of GDP) 4.5% 3.5%
10-year yield (%) 8.8% 7.4%
Currency rank* 19/24 4/24
* The currency rank relates to Dec. ’13, ’14, ’15, ’16 (expected)
Source : Bloomberg
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• Private consumption as a % of GDP is now at its highest in the last decade
• This time around, growth in India would be consumption led
• We expect pick up in consumption following implementation of 7th pay commission
Nominal private consumption highest in the last decade
Source : CMIE, Sundaram Asset Management
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0
2
4
6
8
10
12
50
52
54
56
58
60
62
64
66
68
FY9
5
FY9
8
FY0
1
FY0
4
FY0
7
FY1
0
FY1
3
FY1
6
Nom. Pvt. Consumption (% GDP) Real GDP (%YoY, RHS)
Consumption indicators are seeing steady demand
12
2W sales growth (%YoY HMA)
Domestic passenger vehicle sales growth (%YoY HMA) Credit card o/s growth (%YoY HMA)
Personal loan growth (%YoY HMA)
Source : CMIE, Sundaram Asset Management
12
13
14
15
16
17
18
19
20
Mar
-13
May
-13
Jul-
13
Sep
-13
No
v-1
3
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-1
4
Jan
-15
Mar
-15
May
-15
Jul-
15
Sep
-15
No
v-1
5
Jan
-16
Mar
-16
May
-16
Jul-
16
-5
0
5
10
15
20
25
30
Mar
-13
May
-13
Jul-
13
Sep
-13
No
v-1
3
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-1
4
Jan
-15
Mar
-15
May
-15
Jul-
15
Sep
-15
No
v-1
5
Jan
-16
Mar
-16
May
-16
Jul-
16
-5
0
5
10
15
20
Mar
-13
May
-13
Jul-
13
Sep
-13
No
v-1
3
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-1
4
Jan
-15
Mar
-15
May
-15
Jul-
15
Sep
-15
No
v-1
5
Jan
-16
Mar
-16
May
-16
Jul-
16
Sep
-16
-15
-10
-5
0
5
10
15
Mar
-13
May
-13
Jul-
13
Sep
-13
No
v-1
3
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-1
4
Jan
-15
Mar
-15
May
-15
Jul-
15
Sep
-15
No
v-1
5
Jan
-16
Mar
-16
May
-16
Jul-
16
Sep
-16
Core sector growth offers good support
Source : CMIE, Sundaram Asset Management
Steel production (%YoY HMA)
Refinery production (%YoY HMA)
13
IIP Ex-Capital goods (%YoY HMA)
-1
1
2
3
4
5
6A
pr-
13
Au
g-1
3
De
c-1
3
Ap
r-1
4
Au
g-1
4
De
c-1
4
Ap
r-1
5
Au
g-1
5
De
c-1
5
Ap
r-1
6
Au
g-1
6
-5
0
5
10
15
May
-13
Sep
-13
Jan
-14
May
-14
Sep
-14
Jan
-15
May
-15
Sep
-15
Jan
-16
May
-16
Sep
-16
-5
0
5
10
15
May
-13
Sep
-13
Jan
-14
May
-14
Sep
-14
Jan
-15
May
-15
Sep
-15
Jan
-16
May
-16
Sep
-16
India Manufacturing PMI
47
48
49
50
51
52
53
54
55
56
Jun
-13
Sep
-13
De
c-1
3
Mar
-14
Jun
-14
Sep
-14
De
c-1
4
Mar
-15
Jun
-15
Sep
-15
De
c-1
5
Mar
-16
Jun
-16
Sep
-16
50 level India
Source : Morgan Stanley, Sundaram Asset Management
Broad market seeing increasing free cash flows
Corporate India free cash flows (%YoY)
The broad market is clearly seeing a pick-up in free cash flow generation
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
FY0
1
FY0
2
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
BSE 500 Ex Financials
14
Soft commodity prices continue to remain corporate-positive
Indexed WPI movement of Input / Output baskets
Source : CMIE, Sundaram Asset Management
• The commodity price drop has brought about a significant drop in input prices (chart above)
• Commercial bank transmission of the RBI’s rate cuts would add further cushion
• As output prices remain relatively unchanged, this has been translating into margin expansion
86
88
90
92
94
96
98
100
102
104
106
108
Dec-1
3
Mar-
14
Jun-1
4
Sep-1
4
Dec-1
4
Mar-
15
Jun-1
5
Sep-1
5
Dec-1
5
Mar-
16
Jun-1
6
WPI Input price WPI Output price
15
Change in guard a non-issue; expect rate cuts/better transmission
2015 RBI Repo. cuts and Base rate cuts (in pps)
• The RBI has cut Repo. rates by 175bps from the start of 2015
• Banks have only transmitted, on average, 65bps of this 175bps of delivered easing
• 2016/ early 2017 is set to witness the transmission of most of the rest
• In addition, the RBI could possibly ease by another 25bps, on a good monsoon and spatial distribution
Source : Bloomberg, Sundaram Asset Management
-1.6
-1.4
-1.2
-1
-0.8
-0.6
-0.4
-0.2
0
SBI
BO
B
PN
B
ICIC
I
BO
I
CA
NB
HD
FC
UB
OI
AX
IS
IDB
I
CB
OI
STA
N
CIT
I
YES
IND
US
DB
RB
I
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India, growing in a slowing world; warming up for the next leg
• Every 10 years has seen India shift up on its CAGR without fail
• We are set to enter the next decade of a lift up in growth
Source : CMIE, Sundaram Asset Management
GDP 10 year CAGR %
2.5
4.5
5.3 6.2
7.6
-5
-3
-1
1
3
5
7
9
FY6
6
FY7
1
FY7
6
FY8
1
FY8
6
FY9
1
FY9
6
FY0
1
FY0
6
FY1
1
FY1
6
GDP growth %YoY 10 year CAGR
17
Nifty-Ex financials show growth
Source : Motilal Oswal, Sundaram Asset Management
• Nifty Q1 PAT at 0.3% y/y has been impacted mostly by financials
• Nifty Ex-Financials stands much higher at 2.9% y/y
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Nifty PAT growth (% y/y)
-15
-10
-5
0
5
10
15
20
25
30
Jun
e-1
2
Sep
-12
De
c-1
2
Mar
-13
Jun
e-1
3
Sep
-13
De
c-1
3
Mar
-14
Jun
e-1
4
Sep
-14
De
c-1
4
Mar
-15
Jun
e-1
5
Sep
-15
De
c-1
5
Mar
-16
Jun
e-1
6
NIFTY Nifty Ex-Financials
Disclaimer
Past performance may or may not be sustained in the future
General Disclaimer: This documentis issued by Sundaram Asset Management; an investment manager registered with the Securities and Exchange Board of India in
India and is produced for information purposes only. It is not a prospectus, scheme information document, offer document, offer and sol icitation, to name a few, to buy
any securities or other investment. Information and opinion contained in this documentare published for the assistance of th e recipient only; they are not to be relied
upon as authoritative or taken as a substitution for exercise of judgmentby any recipient. They are subject to change withou t any notice and not intended to provide the
sole basis of any evaluation of the instrument discussed or offer to buy. It is neither a solicitation to sell nor shall it form the basis of or be relied upon in connection with
any contract or commitment whatsoever or be taken as investment advice. The information and opinions contained in this commu nication have been obtained from
sources that Sundaram Asset Managementbelieves to be reliable; no representation or warranty, express or implied, is made th at such information is accurate or
complete and it should not be relied upon as such. Sundaram Asset Managementneither guarantees its accuracyand/or completene ss nor does it guarantee to update
the in formation from time to time. This communication is for private circulation only and for the exclusive and confidentia l use of the intended recipient(s) only. Any other
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be bound by the foregoing limitations. This communication is for general information only without regard to specific objecti ves, financial situations and needs of any
particular person who may receive it and Sundaram Asset Managementis not soliciting any action based on this document. Sunda ram Asset Managementin the
discharge of its functions, may use any of the data presented in this documentfor its decision -making purpose and is not bound to disclose the same. Copies of the
Statement of Additional Information, Scheme Information Documentand application form with key information memorandum may be obtained from the offices of
Sundaram Mutual offices and its authorized distributors or downloadedfrom www.sundarammutual.com For scheme specific risk factors, asset allocation, load structure,
fund facts and taxation aspects please refer scheme information documents available online and at branches/Investor Service Centres; also at
www.sundarammutual.com.
Statutory: Mutual Fund: Sundaram Mutual Fund is a trust under Indian Trusts Act, 1882 Sponsors. Liability for sponsors is limited to ₹ 1 lakh. Sponsors: Sundaram
Finance.
Investment Manager: Sundaram Asset Management Company. Trustee: Sundaram Trustee Company.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully
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